One of the challenges of sharing stock ideas with The Motley Fool readers for my bread and butter is aligning my personal holdings with my personal ramblings. In an ideal world, I’d only ever write bullishly about stocks I hold, but the insatiable demand for ideas and my limited amount of capital precludes this. As a result, I often resort to my watchlists for inspiration for articles.
Readers should always check my disclosure to see whether I also own the stock – that will tell you whether it is a watchlist stock or a portfolio holding. Having said that, my watchlist stocks sometimes outperform my portfolio stocks, at least in the short term. For example, when I covered Hansen Technologies Limited (ASX: HSN) in September 2013, I said, “at $1.10 the market is probably pricing in a little more growth than I am comfortable with, but Hansen remains firmly on my radar as a potential investment.”
Since that time, Hansen dropped to $1.01, then paid a dividend of 3c, then appreciated to its current price of $1.34 – a gain of over 20% in less than a year. I’d like to think I helped someone buy Hansen at a good price (or gave someone the inspiration to hold on) but I didn’t buy it myself. Furthermore, there are companies that I’ve held that I’ve since sold for no real gain or even a loss – one example is Prime Media Group Limited (ASX: PRT) – which I bought instead of Hansen. If you want to know whether I (still) hold a certain stock, you can ask.
The reason I mention this is that I want people to understand that to get the best out of my articles, you need to check my disclosure and account for the fact I might be wrong. Frequently, if I like a company but don’t own it, I think it’s too expensive. Another possibility is that I’m fully invested at that time (it happens) and I don’t want to sell an existing holding. There is also the situation whereby I think that, on balance, I can afford to wait until three days after I write the article (due to trading rules) and buy the company then. Finally, I’ve increasingly moved my portfolio to a more diversified selection of micro-cap companies that I don’t cover often. In part, that’s because the market is more inefficient at that end, but it is also because the trading rules don’t apply to stocks I’ve never covered.
That’s important because the trading rules limit my options. For example, I recently loaded up on shares in Kip McGrath Education Centres Limited (ASX: KME) at 20.5c, because a substantial holder was awkwardly selling large chunks of it at the end of the financial year. They pushed the share-price down from about 40c to 20c, and I simply couldn’t resist. Since I already owned shares (purchased at 29c) I am now overweight the company, and I’d be tempted to sell a small part of my holding at about 31c, but for now, I must hold (it may well turn out for the best, anyway).
When I make a comment like that, I risk encouraging others to sell, and by the time I can actually sell (a quarter) of my shares, the price may well have fallen down a bit. Clearly, it’s against my interests to even state my intentions, even though there is no way my small holding could move the market. However, at the end of the day, I’m content to hold all my shares into the results unless I can sell (just a few) at around 31c, preferably a little higher. I suspect a buyer at 31c would be getting a good deal, anyway, and I do tend to sell too early.
At the risk of tying my own hands in the future, I’ll also disclose I bought Capilano Honey Limited (ASX: CZZ) recently. I like Capilano because Australia has plenty of competitive advantages when it comes to making honey. We have relatively low use of bee-killing pesticides compared to other places, and our apiarists are amongst the most skilled at protecting bees from the plethora of threats to their wellbeing.
Capilano has credibility because its main brand uses 100% Australian honey, and it has a good business strategy of collecting premium honey, building more luxurious brands, and selling the stuff at higher prices. However, I have concerns about the amount of honey that will be produced in Australia as El Nino takes hold. The hotter drier weather may result in less flowers for the bees and could even melt hives, if it gets really hot.
I bought shares in Capilano Honey at $5.70 and $5.77 just days prior to a 20c dividend, making my buy price effectively about $5.55. However, struck with what seemed a super-sweet opportunity, I went a bit overboard, and bought about double my normal position size. I then decided this was inappropriate due to my inability to predict honey yields, so I sold about half at about $6. Shares currently trade at $6.20 and I intend to hold the rest for a while. If there’s one thing I know for sure it’s that I have plenty more to learn – and that’s probably the best investment I can make.
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Motley Fool contributor Claude Walker (@claudedwalker) owns shares in Kip McGrath and Capilano Honey. He has an indirect interest (he thinks) in Hansen Technologies.